Bush's Iran plan a time bomb with explosive results

By Kenneth Davidson

20 March 2006 — 11:00am

THE updated version of the Bush Administration's 2002 national security strategy, released in Washington last week, identifies Iran as the country that may pose the biggest danger to the United States.

According to Reuters, the strategy document, which reaffirms pre-emptive military action as a central tenet of US security policy, raises fears the Bush Administration will resort to force to prevent Iran acquiring nuclear weapons.

If force is used, it will come in the form of air strikes, as US land forces are already overstretched in the occupation of neighbouring Iraq.

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One question still to be confronted is the impact such a strike would have on the US economy and how that would affect the global economy, particularly Australia, which is, after the US, the largest-deficit country in the advanced industrial world.

At the very least, a broadening of the war in the Middle East would be certain to push up interest rates in the US and Australia, because the central banks there would have to protect the currencies' value by increasing yields. How far and fast would depend on judgements about the likely outcome of the military intervention.

An air strike against Iranian nuclear facilities is unlikely to be surgical. There are about 50 sites associated with nuclear development in Iran and they are mainly sited in towns where civilian populations would be at risk. An attack would be certain to inflame the Islamic world against the US, almost certainly lead to a full-scale civil war in Iraq with the support of the predominantly Shiite Iranian people, and the US fleet in the shallow and narrow Persian Gulf would have to withdraw or be vulnerable to Iranian missile attack.

Worse, any air strike against Iran is unlikely to get the support of the United Nations Security Council, given that China and Russia would likely veto any resolution put up by the US.

Why would the Bush Administration risk widening Gulf War II to include Iran when it still has the chance to limit its losses to Iraq? The most popular explanation is that the US wants to pre-empt the Iranian decision to set up a Tehran oil bourse to facilitate the selling and buying of oil in euros instead of US dollars.

The idea is that this would cause a chain reaction in which more and more oil producers and their customers would trade in euros and eventually force the US to pay for its oil in euros too. This would mean the US would have to do what every other country in the world has to do, namely earn foreign exchange through exports in order to pay for its oil imports.

Last year the US trade deficit for petroleum products was about $300 billion. While the $US remains the international reserve currency and oil continues to be traded in dollars, the US can pay for its oil simply by printing more IOUs in the form of US treasury bills.

If the US had to find euros (or yuan) to pay for its oil, it would have to increase taxes, cut consumption and increase exports. In short, according to this scenario, the US could no longer afford to be a military superpower and would have to cut back its global adventures.

In the process, the $US would collapse, wiping out the accumulated financial assets of America's major creditors and probably causing a depression of 1930s dimensions. More generally, such a development opens up the question of whether the reserve status of the $US is supporting US superpower status, or whether US military power is propping up the reserve currency status of the $US.

While the possibility of oil trading in euros and the yuan present a possible long-term threat to US economic and military hegemony, it doesn't have to be dealt with immediately.

Similarly, the threat of a nuclear-armed Iran is at least some years into the future. But even with nuclear weapons and the missiles to deliver them and the control systems to guide them, deterrence and the doctrine of mutually assured destruction (MAD) applies to Iran as much as it did to the Soviet Union.

The main strategic change is that if Iran gets the bomb, the US (and Israel) can't attack Iran unless they are prepared to risk MAD.

The cynical explanation for the Bush Administration's threats against Iran is that, like the build-up to the invasion of Iraq, the real objective is "regime change", which has been re-enforced by the slump in President Bush's approval rating to 34 per cent.

The only thing on the political horizon that might restore Republican fortunes is a new and credible national security threat in order to keep control of Congress in the November elections.

If the Republicans lost control of Congress, the way becomes open for hearings into the constitutionality of the Bush Administration's use of wiretaps on Americans without warrants as required by legislation.

The Republican majority in both the Senate and the Reps has blocked examination of the legality of this and other actions by the Bush Administration.

How far the Bush Administration is prepared to go in Iran in order to avoid losing control of Congress to a hostile Democrat majority, which might opt for impeachment, will have fundamental consequences for the global economy in 2006.